By Simon Pek, Lorin Busaan and Alex Hemingway | This post first appeared in Canadian Dimension
In his first post-election news conference, Prime Minister Mark Carney made a bold commitment to “take control of our economic destiny to create a new Canadian economy.” If that is to happen, Canadian employees deserve more than inspiration—they deserve a greater ownership stake and voice in the companies where they work.
In Budget 2023, the federal government enabled the creation of employee ownership trusts (EOTs), which can purchase and hold shares of businesses in perpetuity on behalf of employees. Unfortunately, the associated capital gains tax incentive was limited to three years and will expire in 2026. Budget 2025, expected this fall, is an opportune moment to make employee ownership permanent by extending and expanding the capital gains exemption for EOTs.
Employee ownership trusts are one model among several of broad-based employee ownership, and empirical research from around the world shows they have strong benefits for firms, employees, and the broader economy: greater resilience, improved productivity, reduced inequality, and stronger continuity in business succession. For example, a recent UK study found that companies converting to employee ownership via EOTs have, on average, enjoyed a 4.4 percent higher productivity increase over three years compared to similar firms.
Early conversions in Canada—at companies like Taproot Community Support Services, Brightspot Climate, and Grantbook—suggest strong interest among both business owners and employees in this model. Based on the highly successful UK experience, it is plausible that hundreds—if not thousands—of conversions could eventually take place here. In the UK, much of the uptake has been driven by deliberate policy decisions: generous tax relief, clear regulatory definitions, and awareness-raising among business owners.
Canada’s federal government has made a promising start with the temporary capital gains exemption—but with limits. The exemption on the first $10 million of capital gains for business sales to EOTs is important. Yet many EOT transactions take more than a year to plan and complete. If the incentive expires prematurely in 2026, many potential transitions may be abandoned or indefinitely deferred.
To avoid losing momentum, Ottawa should extend the capital gains exemption indefinitely rather than letting it lapse after only two years. A permanent exemption would give business owners certainty and allow longer planning horizons, encouraging thoughtful, sustainable conversions instead of rushed ones. Just as importantly, the exemption should be broadened to include worker cooperatives. Budget 2024 proposed such an extension to eligible worker cooperative corporations, but that legislation was never finalized. Worker co-ops are a long-standing model of employee ownership in Canada, offering employees direct control rights and a tradition of democratic governance that complements the EOT framework.
The cost to the federal government is modest. The Office of the Parliamentary Budget Officer has estimated foregone tax revenues from the temporary EOT exemption at approximately $7 million per year. Compared with other tax exemptions—such as the principal residence exemption, which costs the federal and provincial governments billions annually—this is minimal. Even if extended to include worker co-ops, the revenue impact would remain limited relative to the economic and social benefits generated.
Those benefits are substantial. Firms that convert to employee ownership tend to be more resilient in economic downturns, with lower incidence of layoffs and closures. Evidence from the UK shows employee-owned businesses are far less likely—by a factor of five—to lay off their staff over a three-year span than comparable firms. Employee ownership also supports stable employment in smaller communities, strengthening Canada’s economic sovereignty by keeping ownership and decision-making local.
Workers gain too—not just through job security but through income and wealth accumulation, particularly for groups facing economic exclusion. US studies show that employee ownership reduces wealth gaps, boosts household incomes, and gives workers a direct stake in profits. The social dividends extend beyond pay: employee-owners often report higher morale, greater civic engagement (including higher voting and volunteering rates), and stronger commitments to environmental practices within their firms.
Canada is at a pivotal moment. More than $2 trillion in business assets are projected to change hands in the next decade. This demographic shift, with retiring business owners seeking succession paths, creates a rare opportunity to shift large swathes of private enterprise toward employee ownership. If Budget 2025 extends and expands the capital gains exemption, this would be a powerful lever: enabling business succession that preserves jobs, strengthens communities, and shares wealth more broadly. Such a policy would likely enjoy support across the political spectrum and from the business community, and could be a quick win for Canada’s economic sovereignty.
Simon Pek is an associate professor in the University of Victoria’s Gustavson School of Business.
Lorin Busaan is a PhD candidate at the University of Victoria’s Gustavson School of Business.
Alex Hemingway is a senior economist at BC Policy Solutions.
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